In 2017, a company was planning to launch a new project in Canada. The cost of the production equipment is $1,420,000.  The equipment falls in CCA class 8 with a 20% rate for income tax purposes. A working capital investment of $125,000 will be required at the beginning of the project, which will be recoverable at the end the project's life in six years.

The sales forecast is based on the sale of 85,000 widgets per year. The unit selling price is $20 per widget and the unit variable cost is $6. Annual fixed cost totals $650,000.

At the end of the lifetime of the project, the salvage value of the equipment is expected to be $180,000. There will be assets remaining in that CCA asset class so you can use the PV of CCA tax shield calculation. The company's income tax rate is 30% and its discount rate is 12%. 

 

What is the correct value for Step #1?

What is the correct value for Step #2?

What is the correct value for Step #3? 

What is the correct value for Step #4? 

What is the correct value for Step #5? 

What is the correct value for Step #6?
 

Answer rating: 100% (QA)

1 Step 1 Initial Investment Cash Outflow The initial investment includes the cost of production equi... View the full answer